Tag Archives: inflation

A very brief chronology of the Nigerian oil economy

English: Flag of the Organization of Petroleum...

A colleague of mine casually asked me yesterday about Nigeria’s oil economy after independence.  Many isolated events and economic explanations came to mind, but I was surprised when I couldn’t give her a succinct chronology. I thought I would write a paragraph or two to remedy this.

More Nigerians slowly moved from subsistence agriculture to private enterprise around independence, and oil, which had been discovered three years earlier, quickly become the basis of economic growth. Shell had been the first to commercially drill in the country, but in 1960 other companies such as Mobil and Agip were competing for their own stake.  Hopes were high. Oil profitability was greatest during the “Golden Decade” of the 1970s, in which Nigeria became the wealthiest country in Africa. Between 1958 and 1974, production rose from just over 5000 to 2.3 million barrels per day and government revenue increased from N200,000 to N3.7 billion. Within two years, state profit increased by almost 50% to an all-time high of N5.3 billion in 1976. Nigeria bolstered profits when it joined OPEC in 1971, an organization which helped to construct the global petroleum scarcity, and thus the massive profitability of fossil fuels at the time. The economic prosperity was short-lived however.

 

In accordance with the resource curse, the 1970’s oil boom led to a near complete economic crash in the following decade. Nigeria had made an almost total shift away from the traded and diversified agricultural sector to the non-traded sector of petroleum, and projected revenues for petroleum were high. Based on this, President Murtala Mohammed spent and borrowed billions on grand-scale modernization projects.   However, such spending and borrowing in a mono-economy proved highly problematic during the sharp decrease in world oil prices under Babangida in the 1980s. Domestic inflation became so high that even basic food stuffs become too expensive for consumers and Nigeria had to default on numerous debts. To create more jobs for Nigerians, the government forced out the thousands of West African workers who had immigrated to the country to take advantage of the employment in the formerly booming economy.  Rather than take a conditional IMF loan like Ghana did, the government implemented a controversial Structural Adjustment Program (SAP) that proved largely unsuccessful. The economic decline was so severe that by 1989 Nigeria was labeled a low-income country and qualified for World Bank assistance.

 

Despite a slight revival in the 1990s, the economy has yet to recover to early 1970’s levels of prosperity. Today, ¾ of Nigerians live below the poverty line, in a country that produces around 2.6 billion barrels of oil daily. Petroleum accounts for 80% of budgetary revenues and as a result, high inflation has hurt investments for the average Nigerian and made international investment aside from fossil fuels a near impossibility. Few jobs in the oil sector have been created for Nigerians and wealth distribution is grossly unequal. Robert Bates argues the Nigerian oil crisis and subsequent loss of export taxes is what caused the state to become predatory for its income, thus laying the groundwork for today’s poor and often corrupt governance.

 

So, there is the short of it, more or less. There was steady growth of the oil sector in the 1960s, a complete boom in the 1970s that created the “oil state” as we know it, a crash in the 1980s, then a slight improvement in oil revenue in the 1990s that leveled out to what we have today.

 

 

Daily bread v. liberty

A long-standing (but perhaps unnecessary) debate in the field of human rights is that of economic security versus political freedom. States that stress collectivism such as China and some Islamic states, argue on the global stage that without financial security, political freedom is meaningless. They see sound economic conditions as a precondition for the enjoyment of political freedom. What good is the vote if the people have no shoes in which to walk to polling stations? Conversely, advocates of the latter argue that individuals can use free speech and their own autonomy to create the conditions that lead to economic prosperity for themselves and society as a whole. This notion is highly compatible with laissez-faire free markets and cultures of self-sufficiency, e.g. Western European countries and the U.S. It is far better that some people walk barefoot to polling stations on voting day than not have a voting day at all.

Although my interview subjects in rural Nigeria have not heard of this debate, they struggle with it all the same, just framing it in different terms. I asked them a series of questions about how the oppressive military rule of the 1990s, namely that under General Sani Abacha, compares to today’s democratic administration, albeit a less-than-flourishing one. It was in the 1990s that many of the most notorious human rights abuses were committed in Nigeria, and Ogonis in particular suffered some of the worst. During this decade Nigerian dissidents were killed, tortured, disappeared by state agents, women were raped as a means of asserting political power, and there was virtually no free speech. Today, endemic corruption debilitates government and for the majority of citizens, Nigeria continues to be a really…unfair place to live. However, political freedom is vastly improved from what it was 15-20 years ago. Surely Nigeria must be a better place for Niger Deltans now than it was then, right?

From the perspective of most of my respondents, it isn’t. All but three of my interview subjects said that either there is no change at all now from how the government was under military rule, or even more surprisingly, almost half of them told me that things were better in the 1990s. There are several explanations for this. They may have wanted to make their current conditions seem as dire as possible because they hoped for money after the interview, or because they viewed me as representative of some Western power that could help them. Some research indicates that people tend to remember the “good ol’ days” while their current difficulties seem more salient. For my middle-aged research subjects, they may not have had the adult responsibilities or political consciousness to view the state in the same way then that they do currently. For example, a 20-year-old may not think about the importance of fair taxation in the way that that same 40-year-old supporting a family later on thinks about it.

Of those who told me that life was better in the 1990s, there were two types of answers. One smaller group said that society was less chaotic then and the public sphere was more orderly. The strong arm of Abacha ensured that petty thievery was minimized and that economic transactions were regulated. Women described markets where they sold goods as being more organized and predictable. They said they could plan out their family diets better because they knew how much goods would cost in coming weeks and months.

A more common answer though was simply that things were cheaper in 1990s relative to their income. That’s it. The women I talked to wanted food, medicine, clothing, and housing to be affordable. They viewed inflation and unstable prices today as infringing on their well-being more than the threat of village pogroms and extrajudicial killings of family members. They care about fair elections far less than they care about the availability of zinc roofing. They care about the number of independent media sources far less than the amount of cassava their naira can buy. Although I think their responses are a reflection of political marginalization of Nigerian women and the widespread notion that politics are a male realm, they also indicate that their current economic conditions are so precarious that they are willing to living under tyranny to be able to purchase more than a day’s worth of food at a time.

I haven’t done the background reading on this finding yet, and I am sure other research out there has found the same in the global south. It makes me wonder how vastly different human rights deliberations at the EU would be if they weren’t dominated by rich men and had a few rural African women present.

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Women roasting cassava for gari.

The Paradox of Plenty

The resource curse refers to the negative effects natural resources can have on the economy, governance, and levels of conflict, largely in the global south. There is a notable group of scholars who have demonstrated that natural resources such as petroleum can hinder economic performance. Jefferey Sachs and Andrew Warner showed natural wealth resource was negatively correlated with economic growth in a diverse set of extractive economies. The most prominent economic explanations for this paradoxical phenomenon is that oil causes a decline in the terms of trade for primary commodities, allows for poor economic linkages between resource and non-resource sectors, and creates vulnerability to unstable international commodity markets.

Essentially, Nigeria’s emphasis on its singular natural resource (non-trade) causes other less-valuable sectors, such as agriculture (trade), to atrophy because they are seen as less profitable. This trend indicates that having an oil economy leads to an overall shift away from the traded sector to the non-traded sector, and this becomes particularly problematic in times of fluctuation in commodity prices. Volatility in world oil prices and domestic inflation make long-term planning difficult, e.g. the boom of the 1970s left Nigerians with half-finished public projects int he 1980s. Benefits of a good year are short-lived while negative effects of a bad year endure.

States that survive based on natural resource revenue without actually engaging in economic production are rent-seeking. Economic rents create an economy of capital creation without labor or product creation, and foster far more consumptive than productive activities. They engender vicious cycles of patronage, corruption, and enrichment of elites at the expense of state institutions and the public. Oil revenues remove any incentive for meaningful political competition or democratic alliance building, as politicians or civil servants can simply be bought off. In environments of predatory rent-seeking, individuals and groups find begging the government for financial support easier than engaging in productive activity. By succumbing to the temptation to buy off such coalitions, the state creates a system of mutual dependence. Although the concept of this paradox has its detractors, few countries fit the bill like Nigeria does.

The Nigerian Economy 101

Despite having the largest population of any country in sub-Saharan Africa, Nigeria has one of the slowest-growing economies of similarly sized countries, and in most areas average per capita income and life expectancy are actually lower than they were at independence in 1960. The country has extraordinarily low productive capacity and oil, narcotics, and financial scams are the three main generators of foreign currency. Oil accounts for 80% of budgetary revenues and as a result, high inflation has hurt investments for the average Nigerian and made international investment aside from oil an impossibility. The “Golden Decade” of the 1970’s oil boom led to massive spending and borrowing on the part of President Murtala Mohammed for grand-scale modernization projects that remain uncompleted. In the following decade the price of oil plummeted under the Babangida regime and even basic food stuffs become too expensive for consumers and Nigeria had to default on numerous debts.  The economy has yet to recover to early 1970’s levels of prosperity and today, the majority of Nigerians live on less than $2 per day.

Take a look at the CIA World Factbook on the Nigerian Economy: https://www.cia.gov/library/publications/the-world-factbook/geos/ni.html